Boeing was lopped two notches from A- to BBB (two notches above junk) by Standard & Poors overnight. The diagnosis was:
“Cash flow and credit ratios will likely be much weaker than we had expected for the next two years. We now expect free cash flow to be an outflow of $11 billion-$12 billion in 2020 and an inflow of $13 billion-$14 billion in 2021. This compares to our previous expectation of positive $2 billion in 2020 and $22 billion in 2021.
The significant difference is due to an absence of MAX predelivery payments (PDP) into 2021, higher and more front-loaded cash compensation to airlines, additional cash costs related to the production halt (including supplier support), and lower MAX production rates and deliveries than previously expected.
We are also now expecting weaker cash flow from the rest of the business due to cuts to 787 production (including lower PDPs), delays to the first 777-9 delivery, and lower cash flows at the defense and aftermarket segments.
This results in higher debt levels in 2020 (with balance sheet debt peaking at more than $46 billion, including the debt from the Embraer joint venture) and a weaker improvement in 2021, with funds from operations (FFO) to debt in 2020 now likely to be only about 5% (previous expectation was 29%) and about 30% in 2021 (previous expectation was 75%). This forecast remains highly uncertain with the potential for increased downside from the coronavirus.”
As we pointed out earlier this week, Boeing is trading in a negative equity position. The question is should Main St be responsible for bailing out Wall St for blowing its dough on $10s of billions on buybacks. It appears Boeing is seeking a short term plug from the government after drawing down $9.5bn of committed credit lines from the banks. Of course, it is sold as saving jobs during coronavirus but this is just incompetence.
Oh, don’t get me started on Tesla. A frozen economy against a debt monster that just started to scrape some profits together.